Re: FW: Manufacturing accounting

by

agb80

- 07/19/2017 12:22:31

What about distributing manufacturing cost (labour, electricity,
etc) at the end of the period between total manufactured products
on period and recompute average cost for each product, I mean do a
similar process than purchase landing cost but applied for
manufactured products.

From an accountant point of view, do you think it is a viable
process for keep up to date the product cost?

I'm asking because the development for a module that implement
the feature that describe above very briefly was requested from
two different manufacturing customers recently.

El 18/07/17 a las 15:05, Kevin
McMenamin escribió:

Also variations are a gross
manufacturing level (versus individual job) cannot be
managed through average cost. Typically manufacturing
organisations set a recovery rate on labour or equipment for
overheads. But this recovery is then dependent on the
volumes being produced so you end up with an over/under
recovery situation. This is why you need a manufacturing
chart that rolls up to a cost of sale line. I am surprised
that V10 Odoo manufacturing module does not have this, fully
integrated with financial reporting – seems a basic
requirement to me

Because by the time you know the actual costs its too
late - is a case of timeliness vs accuracy. Its in a way
analogous to why we need FX gain/loss accounts. However,
my gut feel is one day you will be right.
Well thats the main reason, there is another half dozen or
so for why manufactures account for variance like this.
Pays to remember that we are not talking abount GPFRs
under a standard here exclusively but also managment
accounting systems that have often instant reporting
requirements.

I don't know if this question is out of scope but,
could you mind explain me why do you manage
cost variations are
also managed in the manufacturing ledger rather than
directly changing average cost? I'm an engineer not an
accountant, I have learned by myself about accounting
in order to be able to help my customers, but for me
is more intuitive to update average cost with any cost
variation.

Thanks for this.
This covers cost variations but there are also
volume variations – using standard cost (usual for
manufacturing) then if the volume is below
budget/expected you end up with an under-recovery.
In my experience, manufacturing firms want to see
that in a manufacturing account that then affects
the P&L. Also, assuming standard costs, cost
variations are also managed in the manufacturing
ledger rather than directly changing average cost
(and I don’t think average cost updates from
manufacturing is supported in Odoo?)

The best practices in manufacturing
accounting suggest that costs for direct
labor, outside services and overhead
portion allocated to production orders
should be accrued at the time of
manufacturing, and the accrual should be
removed once the true labor costs (from
pay slips), or actual applied overhead
have been identified.

Assuming the following cost breakdown for
a finished product:

- Components: $10

- Labor: $10

- Outside Services: $10

The cost of the finished product is
considered to be $30

When a manufacturing order is completed
the following would occur

Consume components:

Dr. Work In Progress: $10

Cr. Inventory Raw Materials: $10

Complete work order (internal):

Dr. Work In Progress: $10

Cr. Production Labor: $10

Complete work order (external):

Dr. Work In Progress: $10

Cr. Outside Services: $10

Produce finished product

Dr. Inventory Raw Materials: $30

Cr. Work In Progress: $30

\

When the employee payslips are entered at
end of month:

Dr. Production Labor: $12

Cr. Direct Labor Wages Payable: $12

In order to bring an overall balance to
Production Labor, a Production Labor
Variances account would be required,
generating the need to create the
following write-off journal entry at the
end of the period:

Dr. Direct Labor Variances $2

Cr. Production Labor: $2

When the supplier invoice for outside
services is entered:

Dr. Outside Services for Production: $11

Cr. Accounts Payable: $11

In order to bring an overall balance to
Outside Services for Production, an
Outside Services for Production Variance
account would be required, generating the
need to create the following write-off
journal entry at the end of the period:

Dr. Outside Services for Production
Variances $1

Cr. Outside Services for Production: $1

Under this schema, if average/real price
is to be used for components, the
manufacture order should determine the total
costs of manufacturing (including
average/real price for products, standard
labor cost, standard outside services, and
standard overhead applied to production) and
update the average/real cost of the finished
product once the manufacturing order has
been completed.

I have a new client who will be using
manufacturing accounting iv V9e and I
am interested in any feedback/comments
the community may have around set up.

Many (many) years ago when I was a
CFO for a manufacturing business our
P&L structure looked like

Sales
xxx

Cost of Sales

Purchases
xxx

Freight
xxx

Manufacturing
Under/Over-recovery
xxx

Gross
Profit
xxx

Then the chart of accounts had a full
structure for the manufacturing
operations where the top level was the
under/over-recovery, so something like

Output at standard
cost
xxx

Direct Costs

Labour
xxx

Materials
xxx

Freight
xxx

Indirect Costs

Rent
xxx

Rates
xxx

Salaries
xxx

Etc

I am struggling to see how this would
be set up in V9 as there are no longer
view accounts to create a structure –
do I need to add the extra categories
in myself and extend the standard
financial reports to cater for this?
If so, has anyone done as I can’t see
any obvious modules that do this

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